cap and trade

This week National Journal’sEnergy Experts Blog poses the question: “What’s holding back energy & climate policy.” So far 14 wonks have posted comments including yours truly. What I propose to do here is ‘revise and extend my remarks’ to provide a clearer, more complete explanation of Capitol Hill’s energy lethargy.

To summarize my conclusions in advance, there is no momentum building for the kind of comprehensive energy legislation Congress enacted in 2005 and 2007, or the major energy bills the House passed in 2011, because:

We are not in a presidential election year so Republicans have less to gain from passing pro-energy legislation just to frame issues and clarify policy differences for the electorate;

Divided government makes it virtually impossible either for congressional Republicans to halt and reverse the Obama administration’s regulatory war on fossil fuels or for Hill Democrats to pass cap-and-trade, carbon taxes, or a national clean energy standard;

Democrats paid a political price for cap-and-trade and won’t champion carbon taxes without Republicans agreeing to commit political suicide by granting them bipartisan cover;

The national security and climate change rationales for anti-fossil fuel policies were always weak but have become increasingly implausible thanks to North America’s resurgence as an oil and gas producing province, Climategate, and developments in climate science;

Multiple policy failures in Europe and the U.S. have eroded public and policymaker support for ’green’ energy schemes;

It has become increasingly evident that the Kyoto crusade was a foredoomed attempt to put policy carts before technology horses; and,

The EPA is ’enacting’ climate policy via administrative fiat, so environmental campaigners no longer need legislation to advance their agenda.

In a post last September, I observed that carbon prices in the EU’s emission trading system (ETS) were so low they failed to incentivize hoped-for technology innovation, yet so high EU governments had to establish a “carbon compensation fund” to keep manufacturers from offshoring their operations. At the time, Reuters reported, permit prices for December had fallen to €7.74 ($9.98) per ton.

Thurdsay’s Financial Times (registration required) reports that EU carbon prices crashed this week to a record low of €2.81 ($3.79) per ton, recovering slightly to €4.41 per ton. The FT observes that carbon permits “have lost 85 per cent of their value from mid-2011 as economic weakness has exacerbated the glut in supply.”

Once again traders and EU officials fret that carbon prices are too low to spur investment in ‘green’ technologies. But there’s a new wrinkle. During most of its history, the ETS was mainly a system of free permit allocations to covered entities. Critics complained that big energy producers reaped windfallprofits at the expense of manufacturers and consumers. Their proposed cure was to auction most allowances and make ‘polluters’ pay. Yet the collapse of carbon prices is partly due to “a new system introduced this month to auction allowances,” which has added “millions more allowances . . . to an already oversupplied market each week.”

The one thing you can take to the bank is that the collapse of carbon prices will induce none of the EU firms receiving millions of Euros from the carbon compensation fund to return any of the money to taxpayers.

Note: A nearly identical version of this column appeared last week in Forbes Online. I am reposting it here with many additional hyperlinks so that readers may more easily access the evidence supporting my conclusions.

A key litigation target in 2013 is EPA’s proposal to establish greenhouse gas (GHG) “new source performance standards” (NSPS) for power plants. This so-called carbon pollution standard is not based on policy-neutral health or scientific criteria. Rather, the EPA contrived the standard so that commercially-viable coal plants cannot meet it. The rule effectively bans investment in new coal generation.

Today, the American Enterprise Institute (AEI), a prominent conservative think tank, hosted a secret, four-and-a-half hour meeting of pols, wonks, and activists, including several self-identified ’progressives,’ to develop a PR/legislative strategy to promote and enact a carbon tax. This was the fifth such meeting to advance the ”Price Carbon Campaign/Lame Duck Initiative: A Carbon Pollution Tax in Fiscal and Tax Reform.” An annoted copy of the meeting agenda appears at the bottom of this post.

Perhaps not coincidentally, earlier this week former GOP Congressman Bob Inglis of South Carolina launched the Energy and Enterprise Initiative, an organization promoting carbon taxes. Inglis obtained funding for the project from the Rockefeller Family Fund and the Energy Foundation, both left-leaning foundations.

Left-right coalitions can be principled and desirable. For example, I worked with environmental groups to help end the ethanol tax credit, and I work with them now to develop the case for eliminating the ethanol mandate. We collaborate because we share the same policy objective, even if not always for the same reasons. The free marketers want to end political meddling in the motor fuel market and the environmentalists want to end federal support for a fuel they regard as more polluting than gasoline. The common objective is consistent with each partner’s core principles.

But such cases are the exception rather than the rule. In general, when left and right join forces, the appropriate question is: Who is duping whom?

My colleague Myron Ebell sent out an alert about the AEI-hosted carbon tax cabal earlier today. It appears immediately below: [click to continue…]

In a sign that Paris has little stomach for a fight over global warming, Francois Fillon, the Prime Minister, urged the European Union to retreat over plans to tax airlines for emitting greenhouse gases.

His letter to Jose Manuel Barroso, the European Commission President, undermined the EU’s claims to be united in its drive to impose ecological virtue on the aviation industry. The plan to force airlines to buy pollution permits when flying in European airspace has been denounced as illegal by other capitals, notably Beijing, Delhi and Washington.

The so-called coalition of the unwilling is pledging to retaliate unless Europe backtracks. Chinese and Indian airlines have been told by their governments to boycott the scheme.

Their American counterparts filed a lawsuit before withdrawing it last month and calling on the Obama Administration to take the lead in pressuring Europe to drop its aviation pollution package.

In France, concern has been fuelled by Airbus, the European aircraft maker, which said that China had shelved orders worth $US14 billion ($13.5 billion) because of the dispute.

The company said that officials in China, which represents 20 per cent of Airbus sales, were withholding their signature on contracts for 35 long-haul A330s and 10 A380 superjumbo planes. [click to continue…]

The EPA gives millions to the environmental groups that sue it. “When the EPA settles or loses those suits, it then awards the groups millions more in attorneys’ fees,” notes legal commentator Walter Olson. “‘The EPA isn’t harmed by these suits,’ said Jeffrey Holmstead, who was an EPA official during the Bush administration. ‘Often the suits involve things the EPA wants to do anyway. By inviting a lawsuit and then signing a consent decree, the agency gets legal cover from political heat.’ Holmstead called this kind of litigation ‘sweetheart suits.’”

The EPA gave millions to groups that sued it to get it to regulate greenhouse gases, like the Environmental Defense Fund and Natural Resources Defense Council. Those groups brought a lawsuit that led to the Supreme Court’s 5-to-4 decision in Massachusetts v. EPA(2007), which vastly expanded the EPA’s jurisdiction. More recently, they sued to compel the EPA to issue greenhouse gas “performance standards” for power plants and refineries. In a recent settlement, the EPA agreed to do just that. Critics “said the costly settlement was ‘concocted in secret’” and that other lawsuits by EPA grantees resulted in collusive settlements that cost the economy billions, increased the EPA’s powers, and gave environmental groups things that they were unlikely to win in any court ruling.

The Competitive Enterprise Institute announced today that it is acting as co-counsel in a recently filed lawsuit in the state of New York against the state’s participation in the Regional Greenhouse Gas Initiative (a state cap and trade program). The lawsuit has been filed on behalf of small business owners in New York State who have faced increased electricity costs, and can be read here (.pdf). The American Spectator has a short write up here. The basis for the suit relies on the fact that elected officials in New York enrolled in the RGGI without approval by the state legislature. New York is the only state involved with RGGI who entered the initiative without approval from its legislature. As RGGI has forced electricity generators to purchase annual carbon allowances, it has raised the price of electricity for New York residents, effectively acting as a tax on electricity producers (those who produce more than 25 megawatts annually) in New York. [click to continue…]

President Barack Obama this week nominated John Bryson to be Secretary of Commerce. Senator James M. Inhofe (R-Okla.) immediately announced that he would try to defeat Bryson’s confirmation by the Senate. It’s easy to see why Inhofe didn’t have to spend much time weighing Bryson’s qualifications. Bryson is a model crony capitalist, lifelong professional environmentalist, and leading promoter of cap-and-trade legislation to raise energy prices.

Here is what Bryson said at a symposium at the University of California, Berkeley, in 2009: “Greenhouse gas legislation – either with a tax or with a cap and trade, which is a more complicated way of getting at it, but it has the advantage politically of sort of hiding the fact that you have a tax, but at the same – you know that’s what you’re trying to do, trying to raise price of carbon….” He went on to say that the Waxman-Markey and other cap-and-trade bills in Congress would not raise energy prices enough to reduce greenhouse gas emissions by the required amount, so that he also favored federal regulations, such as renewable requirements for electric utilities, on top of cap-and-trade. Later, Bryson referred to Waxman-Markey as a “moderate but acceptable bill.”

Driving is an American pastime on Memorial Day weekend. Indeed, today’s holiday is THE road trip occasion in American culture. This acute association explains why American politicians choose the lead up to Memorial Day to trot out plans to address high gasoline prices.

This year, it was dueling votes in the Senate. Roughly speaking, the Republicans tried to increase the supply of oil by ending the Obama administration’s de facto moratorium on domestic drilling, wrought by bureaucratic foot-dragging. The legislation already had been passed by the Republican-controlled House. On the other hand, the Democrats wanted to raise taxes on “Big Oil” companies, by eliminating tax breaks enjoyed by many—and in some cases, all—businesses. Neither party wooed enough votes to survive a filibuster, so they both failed. Of the two, the Republicans’ ideas were better this time, but there have been instances in the past when both parties were equally bad in the run up to Memorial Day weekend.

The American Northeast has attained metaphysical balance on energy rationing, thanks to New Jersey Governor Chris Christie’s (R) announcement yesterday that he would withdraw the Garden State from the Regional Greenhouse Gas Initiative, a multi-state cap-and-trade scheme. After New Jersey leaves, the remaining nine participants will be: Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New York, Rhode Island, and Vermont.

Christie’s unexpected decision serves as the yin to New Hampshire’s yang. In late February, the New Hampshire House of Representatives passed HB 519, legislation that would withdraw the Granite State from RGGI, by a 246 to 104 vote. At the time, it was widely thought that the Senate would quickly follow suit, as Republicans control the upper chamber. HB 519’s ultimate enactment appeared so certain, in fact, that Governor John Lynch (D) issued a pre-emptive veto. It should have been a futile gesture, because Republicans hold a veto-proof majority in both chambers of the legislature. Then the environmentalist lobby mobilized and frightened many members of the Senate. The bill was delayed. And in early May, the full Senate, where Republicans enjoy a 2 to 1 majority, voted to remain in the the regional energy rationing scheme. New Hampshire Republicans had snatched defeat from the jaws of victory.